TOP MESSAGE

“Not taking on challenges is the biggest risk.”

The market environment surrounding our company is changing remarkably and at an accelerating pace. In the car industry, technological innovations such as autonomous driving and vehicle electrification are bringing about dramatic changes in the industrial structure. Maintaining the “status quo” under these circumstances means failing to respond to the needs of the times and risking a significant loss of sustainability. I believe that the greatest risk to our company is “not taking on challenges.”

Perhaps because our business is a niche industry that is difficult for newcomers to enter, I feel that our corporate culture has been conservative to date. To realize the “cultivation of human resources to promote transformation,” as stated in our human resources strategy in the FY2030 “Target Position,” it is necessary to change our corporate culture without hesitation while preserving the values that should be cherished in the future, as mentioned earlier. Organizational change is not simply about introducing processes and measures; it is rooted in the awareness and actions of each employee. Therefore, since assuming the position of president in June 2021, I have continued to send out the message “Let’s take on challenges” to the entire group from time to time. Organizational change will not happen overnight, but I intend to take the lead in changing the mindset of the organization. I am also working to create an environment in which each and every one of our employees can play a leading role in the transformation by changing their awareness and spontaneously taking action.

The establishment of the “Corporate Vision” and the reorganization of the philosophy system are as described above. We will take this opportunity to increase engagement with each and every employee, which will lead to behavioral changes throughout the organization to achieve sustainable growth and strengthen our competitiveness.

In addition, to clearly convey the company’s message to employees as they take on the “Challenge,” the existing personnel evaluation system was revised in FY2023 to incorporate a new system of competency evaluation. By doing so, we hope to encourage people to take new steps toward challenging initiatives without fear of the risk of failure.

As a result of these measures, many employees have come up with new approaches and proposals for many business processes that do not follow precedent. In addition, we are seeing more and more active discussions regardless of the hierarchy of the organization, and we are sensing a positive response in terms of corporate culture reform. In the future, we will work to further reform our corporate culture by multiplying the abilities of diverse people, including those from outside the company, to create a major driving force for improving profitability.

Progress in transformation ~A review of the 2021 MidTerm Business Plan

The first phase of realizing the FY2030 “Target Position”: In FY2022, the second year of the 2021 Mid-Term Business Plan, positioned as a “period for strengthening the foundation,” the company undertook a fundamental review of its capital policy with a strong focus on increasing corporate value and has been working on various measures to improve profitability and the balance sheet. As a result, our market capitalization, which was 66 billion yen at the end of FY2021, increased to 145.2 billion yen at the end of FY2023 (the final year of the 2021 Mid-Term Business Plan), a 2.2fold increase in two years. We also achieved our KPI targets in net sales, capital expenditures, payout ratio, ESG, and other items as planned. On the other hand, ROE fell short of the KPI target due to an increase in capital, mainly owing to an increase in the market price of policy shareholdings, and this was one of the issues to be addressed for the 2024 Mid-Term Business Plan.

Toward growth and enhancement of corporate value ~2024 Mid-Term Business Plan

During the period of the 2021 Mid-Term Business Plan, we were confronted with an unprecedented business environment, including the spread of COVID-19 and soaring raw material and transportation costs due to conflicts around the world, and we felt that we had to focus more on defensive measures and carefully manage our business during this period. FY2024 is the beginning of the second phase of realizing the “Target Position”: The 2024 Mid-Term Business Plan, positioned as a “growth acceleration period,” is now underway. As the name of the phase indicates, we must work to achieve solid growth and increase corporate value by leveraging the business foundation that we have strengthened during the previous 2021 medium-term management period.

In addition to setting KPI targets for profitability, capital efficiency, and other areas, the 2024 Mid-Term Business Plan sets two pillars for improving corporate value: “profitability improvement” and “balance sheet management.”

To improve profitability, we have set measures such as “promotion of DX,” “enhancement of technology development,” and “optimization of business portfolio,” among which “enhancement of human resource strategy” is the most important issue to be addressed during the current medium-term management period. To respond quickly to the rapidly changing business environment and customer needs and achieve sustainable growth, it is essential to change to a corporate culture that embraces new ideas and challenges without fear of change. We will maximize the power of each individual, and the aggregation of these individual strengths will create synergy effects and transform them into a strong organizational strength. We are currently in the process of developing strategic measures to realize this vision.

In terms of balance sheet management, we will focus on three strategies: “investment for growth and strengthening the management base,” “improving asset efficiency,” and “shareholder returns.” In addition to the measures continued from the previous plan, during the period of the current Mid-Term Business Plan, we aim to improve profitability and enhance competitiveness through the realization of “introduction of innovative production lines” and “construction methods that contribute significantly to the promotion of decarbonization,” which are expected to have a large investment effect, thereby improving asset efficiency and maximizing returns to shareholders. Returning profits to shareholders is one of the most important policies of our management, and our basic policy is to enhance shareholder returns while securing the necessary funds for investment in growth. In the KPI for FY2026 regarding shareholder return, we have decided to change the “dividend payout ratio,” which is dependent on net income, and to adopt DOE (dividend on equity ratio) as its indicator to clarify the extent to which returns to shareholders are made. We plan to set the KPI for FY2026 at DOE: approximately 5.4%, with a dividend per share of at least 180 yen.

Business strategy ~ Co-creation business focusing on customer value

With regard to the strategy for each business, the basic policy is to “promote a co-creation business model focusing on customer value” and to further improve profitability by strengthening the structure of the belt business, our core business.

Co-creation business model

For more than 100 years since our founding, we have been creating new products and solutions by continuing to sincerely address each and every issue faced by our customers and society, contributing to solving social issues of each era and co-creating value with our stakeholders. By deepening our co-creation business model, which is one of our strengths, we aim to establish a further competitive advantage by accurately grasping the issues faced by our customers and, by extension, the issues faced by society and maximizing customer value.

Strengthening the core business structure

Our products are used in a wide variety of machinery and equipment, including cars, agricultural machinery, various industrial machinery, and environmental devices and equipment. In today’s rapidly changing market environment, it goes without saying that analysis of the growth and profitability of each industry and market is necessary to continue to improve profitability in a sustainable manner in the future. We are currently in the process of analyzing our business portfolio to optimize it, which will further strengthen our core business structure going forward.

Our approach to ESG management

Since I became president, I have positioned the promotion of ESG management as one of our strategic changes. Under our corporate philosophy of “To give attentive consideration to both humanity and nature,” we are strongly promoting the creation of a company that can contribute to the realization of a sustainable society through its business activities.

In addition to promoting activities to reduce CO₂ emissions to realize a decarbonized society, one of the measures we are currently focusing on is the development of next-generation products with sustainability at the core of our concept. To date, we have developed and sold a variety of belts that can contribute to improved fuel efficiency of cars and energy conservation of facilities. In addition to these products, we are developing products that use up to 70% non-fossil or recycled materials, for example, and through the sale of these products, we aim to further reduce the environmental impact of our products and contribute to the creation of social value.

In addition to the aforementioned human resources strategy, initiatives related to respect for human rights are also essential for a company to fulfill its responsibilities as a member of society and achieve sustainable growth. In addition to the “Human Rights Policy” and “Procurement Policy” already formulated, Mitsuboshi Belting Group also established and disclosed its “Procurement Guidelines” in February 2024 and is in the process of promoting human rights due diligence throughout its supply chain.

With regard to governance, we are promoting various initiatives to improve the transparency and credibility of management. We will continue our efforts to improve engagement by incorporating the opinions we have received through dialogue with our stakeholders, including increasing the ratio of outside directors to at least 1/3 and changing the term of office of directors from two years to one year.

Lastly

We are now in the third year since we began our efforts to realize our “Target Position,” but there is no end to our efforts. We believe that our important mission is to continue to be a company that can contribute to the realization of a sustainable society 50 to 100 years into the future, setting the realization of our FY2030 “Target Position” as one of our milestones.

In this report, in addition to our current and future initiatives, we will also focus on our past history and carefully convey various contents, including our value creation process. Mitsuboshi Belting will continue to promote the “Challenge” to realize value co-creation with shareholders, investors, and other stakeholders. We sincerely appreciate your continued support for our business activities.

September 2024